Just as a falling stock market erodes the value of individual retirement accounts, Missouri's public pension programs are also suffering.

But unlike IRAs or 401(k) plans, public pensions promise fixed payouts. When investment values fall, the difference must be made up from taxpayers through larger employer contributions and more from the paychecks of public employees.

School districts already faced an increase for the coming year. Districts and employees make equal contributions to the Missouri Public School and Education Employee Retirement System. For classroom teachers and other educators, the contribution will increase to 13.5 percent from 13 percent of their paychecks beginning July 1. That higher rate was set last year before the market began its decline.

Since those rates were set, the retirement fund has lost heavily on its investments. The fund was down almost 26 percent last year. Since Jan. 1, it has lost another 5 percent of its value, said Steve Yoakum, executive director.

"The decline is unlike anything we have ever seen in the history of the system," Yoakum said. "I am concerned, but I am not frightened."

The Cape Girardeau School District contributed $2.8 million to the retirement system in each of the past two years. The coming increase in the contribution rate will add almost $200,000 to that bill. And the contribution rate can grow by half a percent each year until the retirement plan has enough money to meet all its long-term obligations.

"When there is an increase such as this, we must decrease funding in other areas to cover the additional cost," said Misty Clifton, finance director for Cape Girardeau schools.

Missouri operates several public employee retirement plans. Most state workers are covered by the Missouri State Employees Retirement System, or MOSERS, a program that includes employees at Southeast Missouri State University. Missouri State Highway Patrol troopers and employees of the Missouri Department of Transportation have a separate system, called MPERS.

For employees of local government agencies, the state offers the Missouri Local Government Retirement System, or LAGERS.

There are also smaller systems, including one for prosecuting attorneys and another for county sheriffs.

All the programs work essentially the same way. Benefits are based on the number of years of service and a percentage of the employee's highest or final earnings. The amounts can range from 1 percent of pay for each year of service to 2 percent of pay.

Overall the major pension programs lost about $10 billion in value in 2008. The decline has continued this year. The local government system, for example, saw the value of its investments decline by $168 million in February.

However, the plans don't have to recognize gains and losses immediately. Through a system called smoothing, big gains and big losses are spread over several years to give governments some stability in the demands on taxpayers, said Gary Findlay, executive director of MOSERS.

Ample reserves

The systems also benefit from conservative Missouri attitudes that require plans to keep ample reserves. Actuarial studies completed before the big declines began pegged most plan assets at 60 to 90 percent of the amount needed to pay all current and future benefits.

"The objective that is stipulated by law is to have contribution rates that remain relatively level over decades of time because we are a plan with very long time horizons," Findlay said.

Some states have learned that making required contributions is cheaper in the long run. In the past two years, many states borrowed money or considered doing so to shore up their systems, only to see the borrowed money disappear as markets declined.

"Many of those states that did that are very, very sorry they did," Yoakum said.

Because investment returns traditionally provide 65 percent or more of annual additions to the retirement funds, a steep decline can have a dramatic, if delayed, impact. The drop in stock values from 2000 to 2002 forced the MOSERS trustees to increase the contribution rate by 2 percentage points, to 12.59 percent of payroll. The new rate was approved in September 2002. State government agencies, including Southeast Missouri State University, began paying the increased rate in July 2003.

This year's contribution to MOSERS will cost state taxpayers $255 million. Southeast will chip in $6.4 million of that amount, said Jim Cook, director of human resources for the university. If losses result in another 2 percent increase, it would add $1 million to Southeast's annual pension costs.

Whatever the rate, Cook said, the university will pay it because it has no choice. "It is just part of our budget and the cost of continuing," he said.

Contribution rates for local governments vary depending on the benefits selected and the demands on those contributions, said Bill Schwartz, executive director of LAGERS. While LAGERS overall is well funded, the system essentially administers independent pension plans for each entity, he said.

In Southeast Missouri, the Cape Special Road District pays one of the highest rates at 19.3 percent of payroll while Jackson pays some of the lowest rates, from 4.4 percent for general employees to 6.8 percent for firefighters.

Schwartz declined to speculate on what will happen to contribution rates due to the recession. The smoothing process for returns will help, he said. "If you are the finance director for the city of Cape Girardeau, you have got to have some mechanism to budget for the next year or two years," he said. "You can't have a rate that fluctuates 20 percent per year."

Cape Girardeau offers employees a pension of 1.5 percent of final average pay for each year of service. The city spent about $1.1 million this year to provide that benefit, said John Richbourg, finance director. While the city faces financial stresses, including a looming $650,000 gap in its upcoming budget, pensions won't be an issue this year. Any increase in contributions will begin in July 2010.

But the stock market declines are a source of worry, Richbourg said. "I suspect that over the next two or three years the trends are not going to be that good unless we have a tremendous pop in the stock market," Richbourg said.

Just as financial markets were in the worst part of their decline last year, Scott City was acting to increase pension benefits for its employees. The city changed its LAGERS program to provide a pension benefit with a service multiplier of 1.5 percent of payroll instead 1 percent.

The change cost the city an extra $18,651 on top of the $46,673 that it would have paid if benefits were unchanged, The extra cost helps keep good employees and reward them for loyalty, Mayor Tim Porch said.

If the recession pushes the cost up, the city will pay it, he said.

"If you are out there serving the citizens of Scott City, the 5,000 citizens who pay your salary, we want the employee to be happy and efficient," Porch said. "It pays back to the taxpayers in the services they provide."

rkeller@semissourian.com

388-3642

Pertinent addresses:

Cape Girardeau, MO

Scott City, MO

Southeast Missouri State University, Cape Girardeau, MO

120 Warson St., Cape Girardeau, MO

Jefferson City, MO